Shaping Your Financial Future

4 Things To Consider Prior To Taking Out A Short-Term Loan For Your Business

25 May 2016
by Angie Wells

If you are in the market for a short-term loan for your small business, there are a few things that you need to consider prior to simply jumping the gun and taking out the loan. Here are four of them:

Make Sure You Know What the APR Is

When you take out a loan, there is an annual percentage rate, also known as APR. This is the interest rate that you will paying. It is what it will cost to finance the loan. It is important that you know what this rate is, as it is the best way to compare lenders and find the best deal. Ultimately, you will need to know the amount of money that you want/need to borrow. Then, you can determine how long it'll take to pay your loan back and how much your monthly payments will be. You can use online calculators to help you figure out your these numbers.

Don't Overlook the Fees

When it comes to loans, there are always fees involved. The fees vary depending on the lender, so you will need to find out what types of fees the short-term lender uses. Usually, there will be a fee involved for arranging an automatic withdrawal of payment from a checking account. There may also be some upfront fees for taking out the loan in the first place. Many lenders will likely charge a fee if there is not enough funds in your checking account to fully cover your loan payment.

See If There Are Any Penalties for Prepayment

You wouldn't think that you would get in trouble for paying your loan back early, but some lenders will charge you a certain fee if you do. Usually, the lenders will charge you the interest that you would have been required to pay if you decide to pay the loan of early. Some may offer you a discount on the interest, though. The reason that lenders penalize you for prepayment is because they're losing money if you pay your loan off early, so this way, it's a win-win situation for them.

Find Out If the Lender Reports to Major Credit Bureaus

In some cases, you may not actually need money. You may be interested in taking out a short-term loan in order to build up credit to eventually take out a traditional bank loan. If this is the case, it won't help you if the short-term loan lender doesn't report to any of the major credit bureaus. So, you need to make sure that you check with them ahead of time to ensure that they do indeed report if that is important to you. You will also want to find out the frequency of their reporting. Some may report while you are making payments, some may report when the loan is paid in full, and some may not report at all.

About Me

A few years ago, I found myself in a tough spot. I was completely out of money, and my expenses kept piling up. I knew that if I didn't turn things around, I would be declaring bankruptcy for my business. To ward off financial disaster, I decided to invest a little time into learning how to budget. I made a few simple changes, including eating out less, paying attention to fines and fees, and avoiding excessive shopping trips. You wouldn't believe how quickly things changed. This blog is designed to teach beginners how to shape their financial future, so that you don't have to worry.